China’s August Factory Activity Beats Estimates

Source Credit : CNBC

China’s manufacturing activity unexpectedly returned to growth in August on the back of a recovery in new orders and export business, a private survey showed Monday, helped by an extended trade-war truce with the U.S.

The RatingDog manufacturing purchasing managers’ index came in at 50.5, sharply beating estimates of 49.7 from economists polled by Reuters.

The gauge signaled the fastest rate of expansion since March, rebounding from July’s 49.5. A reading below 50 signals contraction while one above that threshold suggests an expansion.


The improvement was in part driven by a recovery in new export orders, indicating the “resilience of external demand in the face of tariffs,” Zichun Huang, China economist at Capital Economics said in a note. The gains in overall output and new orders were more muted, suggesting “little improvement in domestic demand,” Huang added.

Average raw material costs rose at their fastest pace in nine months, prompting some businesses to pass on the higher expenses to consumers. The average sale prices stabilized after eight months of declines, the survey showed.

Beijing has sought to curb excess capacity and the price wars sweeping across industrial sectors that have weighed on businesses’ bottom lines.

That said, profit trends interpreted from the PMI data showed only a slight recovery and remain under pressure overall, Yao Yu, founder of RatingDog, said in a statement.

While overall business confidence improved, employment in the manufacturing sector remained bleak, the survey showed, as business owners remained cautious with staffing, reducing jobs for a fifth straight month.

“The latest upturn resembled a breath of relief rather than a sustained rally,” Yu said, cautioning about persistent weak domestic demand, “potentially overstretched external orders,” and a slow profit recovery.

“The durability of the improvement depends on whether exports truly stabilize and whether domestic demand can pick up pace,” Yu added.

The results of the private survey was still more upbeat than the official reading released Sunday, which showed manufacturing activity shrank for a fifth straight month in August, coming in at 49.4 compared with 49.3 in July.

The non-manufacturing PMI index, covering services and construction, expanded to 50.3 in August from 50.1 in the prior month.